The impact of oil price on National Fund reserves: The case of Kazakhstan and Norway

Abstract

The objective of this research project is to is to develop proposals for the National Fund of the Republic of Kazakhstan to increase profitability as well as well as the possible use of its resources based on international experience. For this investigation linear regression analysis model will be used. This analysis helps to find out main dependent variables which have the highest influence on the National Fund reserves. Methodology of research work consists of several main steps. The first step is to understand basic theoretical information, to review empirical studies related to analysis of Kazakh and foreign literature on the functioning of the Fund and similar funds abroad by different authors and analyze their results and conclusions. This step is viewed in Literature review part. The second is analysis of statistical data on the work of the Fund, analysis of the legislation regulating the activities of the Fund. The study population consists of the National Fund functioning nineteen years. Data was collected from published annual financial reports, annual reports of the Sovereign Funds, statistical agencies and other open resources (Committee on Statistics of the Ministry of National Economy of the Republic of Kazakhstan, the Ministry of National Economy of the Republic of Kazakhstan, the Ministry of Finance of the Republic of Kazakhstan, the National Bank of the Republic of Kazakhstan). Third stage is to analyze relationships between the National Fund reserves, its investment income, tax revenues, withdrawals and oil price, oil production, republican budget, exchange rate, returns of S&P 500, investment returns of GPFG, inflation rate. For this investigation linear regression analysis model is used. This analysis helps to find out main dependent variables which have the highest influence on the National Fund reserves. The last stage is to summarize findings and answer main question whether the oil price do influence to the National Fund reserves or not. The results of the accepted hypotheses show that apart from the ineffective management and use of the National Fund revenues, which is highly dependent on oil prices, the Fund’s current investment strategy also exacerbates its current state in the long run. Thus, investment strategy of the Fund is subject to be diversified in the long-term perspective into a well-balanced portfolio in order to minimize dependence on oil revenues and maintain the priority function - savings of the National Fund reserves and their enhancing.